TheEconomistMarch 14th 2020 351“I
n the historyof any nation there are
special moments and seminal events,”
said President Uhuru Kenyatta in August.
He was celebrating Kenya’s entry to the
club of oil producers with a symbolic ship-
ment of 200,000 barrels. “The first export
of crude oil by our nation...marks a special
moment in our history,” he declared.
Politicians love oil. Selling it generates
easy money for governments; much easier
than taxing citizens, who might then de-
mand services, democracy and good gover-
nance. Petrodollars also lubricate patron-
age networks. They can be used to buy
votes, silence rivals or, if that fails, fund a
comfortable retirement abroad.
So when the price of oil fell by about
30% on March 9th, to below $32 a barrel
(see Finance section), many politicians
were aghast. Oil prices crashed because co-
vid-19 cut global demand and Saudi Arabia
opened its taps to crush high-cost produc-
ers. The consequences for other oil-pump-
ing nations will be economic pain and hard
choices. The pain will be felt in broad
swathes of the Middle East and Africa.A rehearsal took place in 2014, when oil
prices fell by more than half. This time will
be tougher, since countries burned
through many of their cash reserves during
that crash. The most immediate impact
will be on government budgets.
Start in Nigeria, where oil accounts for
roughly 90% of exports and two-thirds of
government revenue. The finance minister
has already called for a review of the bud-
get, which was based on an oil price of $57 a
barrel. Yet austerity will prove difficult in
an economy so lethargic that it is barely
keeping pace with population growth.
There is little space for borrowing: 65% of
government revenues go to servicing exist-
ing debt. Nonso Obikili, a Nigerian econo-mist, assumes that the government will
simply print money to pay civil servants,
which would stoke inflation.
The price war will make a mess of public
finances in parts of the Gulf, too. Oman’s
2020 budget predicted a deficit of 8% of
gdpeven with oil at $58 a barrel. Prices at
$30 would send the deficit as high as 22%.
Bahrain, a middling producer that none-
theless relies on oil for around 75% of pub-
lic revenue, had hoped to balance its bud-
get by 2022. Both will probably have to cut
spending and borrow money. Their debt
loads have soared since 2014, when years of
$100-a-barrel oil came to an end. Oman
now owes more than 60% of gdp, up from
5% in 2014, while Bahrain’s debt load
jumped from 44% to 105%.
Wealthier countries can muddle
through for years. Saudi Arabiahad bud-
geted for a $50bn deficit in 2020. Goldman
Sachs, a bank, thinks it could now surpass
$80bn; other economists put the hole at
$100bn. But the kingdom has about $500bn
in the central bank, and it can borrow
cheaply, with ten-year bonds trading at
yields of less than 4%. Saudi debt is 24% of
gdp, low by global standards. However, it is
a marked increase from 2014, when the
kingdom owed less than 2% of gdp.
Much of this debt is unproductive: Gulf
states are borrowing to sustain current,
bloated levels of spending. The new sultan
of Oman, Haitham, who took power in Jan-
uary after his cousin’s death, would like to
dole out largesse. Dubai, part of the UnitedThe politics of cheap oilThe big squeeze
ABU DHABI
Governments in Africa and the Middle East will have to learn to live with lessMiddle East & Africa
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